MOSCOW - India and Russia on Wednesday decided to jointly develop a fifth-generation multirole fighter aircraft, signaling new heights in defense cooperation between the two countries.

Russian Vice Premier Ilya Klebanov said that an understanding has been reached "in principle" with Indian Prime Minister Atal Bihari Vajpayee for the development of the fighter planes. Klebanov said that Russian experts would travel to India to make the presentation in the first quarter of 2002, adding that the designer of the aircraft might be named before the end of this year.

The announcement came on the same day that Indian aircraft manufacturer Hindustan Aeronautics Limited (HAL) said that it will invest millions of dollars in manufacturing a light combat aircraft in India for the first time. "The Indian government is going to very soon clear limited production of the Light Combat Aircraft [LCA]," HAL chairman N R Mohanty told the Press Trust of India in the southern Indian city of Bangalore.

"The investment is going to be more than 5 billion rupees [US$104 million]. We will produce a small number," he added. The LCA made its first test flight in January and was unveiled in public at an air show in Bangalore the following month.

India hopes the LCA - which has been on the drawing board since 1983 - will reduce dependency on imports for its technology-starved air force, the fourth largest in the world. Mohanty said that HAL was also in discussions with Russian aviation officials for the joint manufacture of a 100-seater multirole transport aircraft, which could be used as both a military and cargo plane. HAL is also keen on securing a license from Russian companies for the production of the sophisticated Sukhoi 30 MKI military aircraft, he said.

Following a meeting with Vajpayee, Russian President Vladimir Putin hailed bilateral military cooperation between the countries as a "promising area". During the Cold War, the former Soviet Union and India maintained close ties, as Moscow used to be India's biggest arms supplier and an important trade partner.

Arms sales remain an important factor in bilateral trade. India and Russia have agreed to extend to 2010 a long-term program of military-technical cooperation signed in 1994 and initially limited to the year 2000. India, which has equipped nearly two-thirds of its armed forces with Russian hardware, imported Russian arms worth $3.5 billion between 1990 and 1996.

Under a protocol signed in November 1999 in New Delhi, Russia has agreed to sell a range of weapons systems to India. The deals could earn Russia as much as $4 billion over the next three years. These deals include $1.5 billion from the sale of 60 carrier-capable MiG-29Ks, with a further $1.5 billion from the sale of a production license for Su-30MKI multi-purpose fighter planes - which HAL is keen on acquiring. The remaining $1 billion would come from a deal to sell T-90 tanks to India and for the production license to cover the Indian manufacture of these battle tanks. By the end of 2001, Russia and India are to finalize a contract to sell the Russian aircraft carrier Admiral Gorshkov to India.

On the political front, the subject of a post-Taliban Afghanistan was a central theme during talks between Putin and Vajpayee. Both keen to promote their countries' interests in a post-Taliban Afghanistan, the two leaders discussed the US-led campaign in Afghanistan and their commitment to stamping out terrorism.

On Tuesday, the leaders signed a joint statement as well as a declaration on strategic issues, which described terrorism as "absolute evil" and a global challenge to peace and security. Both sides also support a stronger United Nations role in any solution to the Afghan question should the Taliban be ousted.

Both countries strongly back the Northern Alliance, a grouping of ethnic minorities, that has been fighting the Taliban for years. Describing India as Russia's "most reliable partner" in the fight against terrorism, Putin said that India should have a say in decision-making processes relative to Afghanistan's future.

Putin also said that he supported the "Six plus two formula" - six neighboring countries plus the United States and Russia - to be used in determining the course of any Afghan settlement.

Putin warned against what he described as "a policy of double standards" that could result in a split of the international anti-terrorist coalition. "There cannot be good and bad terrorists, our terrorists and others," Putin said.

Russia and India support a "multipolar world order", the joint statement said, in reference to a declaration on a bilateral strategic partnership advocating a multipolar world concept that was signed during Putin's visit to New Delhi in October last year.

A Russo-Indian statement on strategic issues supported the Anti-Ballistic Missile or ABM treaty as well as nuclear non-proliferation and disarmament.

Going beyond the Afghan question, the two leaders also discussed economic ties as Moscow believes that the current level of bilateral trade is not enough, according to Klebanov. Bilateral trade turnover between Russia and India in 2000 slipped to $2 billion from roughly $3 billion in 1999. Indo-Russian trade includes tea, tobacco and pharmaceuticals from India and metal products and fertilizers from Russia.

Trade between the two allies, which averaged around $4 billion a year in the early 1990s, fell to $1.3 billion in 1996. Moscow had hoped to increase bilateral trade to $5 billion annually by 2000, but this benchmark is not expected to be achieved any time soon.

Putin said that Russia and India should prioritize cooperation in the energy sector, notably atomic and hydropower as well as oil and gas, and the modernization of industrial projects built in India by the former Soviet Union.

India is one of Russia's biggest debtors, owing some $10 billion, mostly for earlier warplanes and other arms supplies. In 1992, an agreement was signed requiring India to repay the loans in rupees over 12 years, $1 billion of which would be used each year to buy Indian goods.

But the arrangement has not worked according to plan as Russia has never managed to purchase $1 billion worth of goods each year. Now moves toward switching from rupees to hard currency are seen as instrumental in encouraging trade between the two nations. This is why on Tuesday Putin also urged "more flexibility" in bilateral financial transactions.

During the visit, Russian and Indian officials also signed a memorandum on the Kudamkulan nuclear power project at an estimated cost of $2.6 billion. According to Russia's Atomic Energy Minister Alexander Rumyantsev, the agreement amounted to little more than a tentative deal because both sides have yet to sign a formal contract. The Kudamkulan contract is due to be signed by the end of this year, according to Klebanov. The project involves Russia building the plant in India's southern Tamil Nadu state, with two 1,000-megawatt reactors.